HF performance, inflows seem to turn a corner

Industry data suggest that hedge fund firms are seeing an upswing in performance and investor capital as we approach the final quarter of 2020.

“SS&C GlobeOp’s Capital Movement Index for September 2020 of 0.34% indicates positive net flows for the month and represents an increase from net inflows of 0.25% for the same period a year ago,” said Bill Stone, chairman and chief executive officer at SS&C Technologies. Moreover, September 2020 is the fourth consecutive month of favorable year-over-year comparisons in capital flows; we believe confidence in hedge funds remains strong.”

The company’s index reported overall performance gains of 1.74% for the month of August. Other industry databases also suggested improving performance figures with eVestment reporting 2.5% gains in August and HFR’s HFRI Fund Weighted Composite Index gaining 2.7% last month.

At HFR it marked the fifth month that the index has been up, gaining more than 15% over the past five months.

“Hedge funds extended the historic performance surge in August despite ongoing virus and political uncertainty, posting the strongest five-month total return since early 2000 and the third-strongest five-month recovery return from a drawdown trough since its inception in 1990,” stated HFR President Kenneth J. Heinz.

He pointed to a rich opportunity set for long/short investing with additional opportunities evolving in highly valued technology names, commodity and cryptocurrency exposures as well as improving CMBS and other mortgage spread positions.

“It is likely that institutional investors will continue to increase allocations to hedge funds and other alternative assets as ideal portfolio exposures for opportunistically navigating current and future market uncertainty,” he added.

SS&C GlobeOp’s positive net inflow reports also point to investor interest building in the space. But as has been with almost everything in 2020, even investor sentiment can fall as fast as it grows. For instance, in December 2019, the capital inflows index hit a 12-month high at 131.72. The following month, January 2020, it hit a 12-month low of 129.61. Currently at 131.07, and still has a far way to go from its all-time high of 150.77 in September 2013.

According to another data provider, eVestment, almost every major hedge fund type and strategy it tracks put up positive average returns in August. The firm said that most hedge funds types and strategies are now showing positive average returns for the year, indicating that the industry is regaining its footing following a challenge few months.

For instance it was only in July that the hedge fund industry got back to 0% year-to-date returns. Year-to-date through August, eVestment puts the industry return average at 2.21%.

HFR estimates that the five-month period through August with gains of 15.4% was the best the industry has done since the five-month period ending February 2000. Still the HFRI Fund Weighted Composite Index is up only 1.9% for the year.

Still it is worth remembering that the same HFRI index was up over 10% in 2019. And with those figures in mind, hedge fund performance averages still have a long way to go to make up the still unfolding impact coronavirus is having on each and every corner of the investment markets. Rest assured, investors are watching the industry closely.

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